2023 (7) TMI 693 - HC - Income Tax

TDS u/s 194A - non-deduction of TDS on account of interest paid to the Jammu Development Authority JDA - Declaration of local area and constitution of Development Authority - HELD THAT - Authority is a body corporate known by the name of Jammu Development Authority and shall have perpetual succession and a common seal etc. That being the position, there can hardly be any dispute that JDA is a corporation constituted under the State Act i.e the Development Act 1970. S.O 3489 of 1970 clearly notifies a corporation established by a Central, State or Provincial Act exempt from the operation of sub-section (1) of Section 194A - JDA is not incorporated like the company which is incorporated under the Companies Act or the Cooperative Society which is registered under the Cooperative Societies Act. The JDA is a statutory body which owes its origin to the Development Act 1970 and is regulated in its functions by the provisions of Development Act 1970 and the rules framed thereunder. The JDA is similar to the Agra Development Authority constituted under the provisions of Uttar Pradesh Urban Planning and Development Act, 1973 and NOIDA established under Uttar Pradesh Industrial Area Development Act, 1976. Both the aforesaid Authorities too have been constituted under the similar Development Acts legislated by the State of Uttar Pradesh. We hold that ITAT committed no error of law in confirming the order of CIT(A) deleting the non-deduction of TDS on account of interest on fixed deposits paid to the Jammu Development Authority even when JDA is a taxable entity. We further hold that the assessee was under no obligation to deduct TDS on interest payments made to the JDA on its fixed deposits in terms of Section 194A - JDA being a corporation established by the State Act. i.e the Development Act 1970 was, thus, outside the purview of sub-section (1) of Section 194A.

Summary

Issues Involved:
1. Whether the ITAT erred in confirming the order of CIT(A) deleting the non-deduction of TDS on interest paid to the Jammu Development Authority (JDA).

Summary:

Issue 1: Obligation to Deduct TDS on Interest Payments to JDA

The Revenue filed appeals under Section 260A of the Income Tax Act, 1961, challenging the ITAT's order which confirmed the CIT(A)'s decision that the assessee-Bank was not required to deduct TDS on interest payments to JDA for the assessment years 2010-11 and 2011-12. The Assessing Authority had initially held that JDA is a Local Authority not exempt from tax, thus obligating the assessee-Bank to deduct TDS on JDA's deposits. The CIT(A), however, accepted the assessee-Bank's plea, relying on an earlier ITAT judgment, and ruled that no TDS was required.

The ITAT upheld the CIT(A)'s decision, referencing its earlier ruling for the assessment years 2007-08 and 2008-09, which stated that JDA, incorporated under the J&K Development Act, 1970, was exempt from TDS under CBDT Notification No. 3489 dated 27.10.1970. This notification exempts corporations incorporated under a State Act from TDS provisions.

The High Court, after reviewing Section 194A of the Act and the relevant notification, concluded that JDA, being a corporation established by the State Act, was exempt from TDS on interest payments. The Court referenced the Supreme Court's rulings in Commissioner of Income Tax (TDS), Kanpur vs. Canara Bank and Union Bank of India vs. Additional Commissioner of Income Tax (TDS), which dealt with similar issues concerning statutory authorities like NOIDA and Agra Development Authority.

The Court dismissed the Revenue's reliance on the Adityapur Industrial Area Development Authority case, noting that it addressed a different issue regarding income exemption under Article 289(1) of the Constitution, not the applicability of Section 194A.

Conclusion:

The High Court held that ITAT committed no error in confirming the CIT(A)'s order and ruled that the assessee-Bank was not obligated to deduct TDS on interest payments to JDA, as JDA is a corporation established by the State Act and thus exempt under Section 194A(3)(iii)(f) of the Act. Consequently, both appeals were dismissed.